Asset titling: Don’t overlook a key piece of your estate plan

When you’ve invested your time and resources to put an estate plan in place, it’s essential you don’t overlook one of the keys to finalizing your plan: updating asset titling to align with your estate strategy. Doing so can help ensure your wishes are carried out.

Common forms of asset titling

By operation of law

Some transfer methods don’t require a will and/or trust. Instead, these assets pass at your death with little to no effort by the subsequent owner — and most don’t require probate. Examples include a form of joint ownership with survivorship rights, transfer on death (TOD) or payable on death (POD) provisions, beneficiary designations, as well as successor owner designations on 529 plans. Numerous ownership structures and state laws allow for assets to transfer by operation of law; the most common among those are described here:

Transfer on death (TOD)/payable on death (POD): This titling method is a simple form of estate planning and is most often found on bank and investment accounts, though cars and real estate can contain TOD/POD provisions on titles and deeds in some states. At your death, the beneficiary can take possession without the need for probate. The terms of your will or trust have no impact on a POD or TOD unless you’ve designated your estate or trust as a named beneficiary.

Beneficiary designation: This method is similar to the TOD/POD process but is found more often on life insurance policies, annuity contracts and retirement accounts such as IRAs and 401(k)s. At your death, the asset passes directly to the individual(s) and/or entity(ies) you named as beneficiary(ies) and probate is avoided, unless you designated your estate as a beneficiary.

Joint tenancy with rights of survivorship (JTWROS): JTWROS is a common form of ownership found in assets such as bank accounts, investment accounts and real estate. In JTWROS, each owner has an undivided proportionate ownership interest. When one owner dies, his or her share of the property immediately passes to the surviving owner(s) without the need for probate.

Successor owner designation: This method is also similar to the TOD/POD process but relates to individual 529 plans. The assets pass to the designated successor owner upon your death. The successor owner may not be the same person as the education beneficiary.

Assets pass according to your will

A will is a legal document that articulates your wishes for how you’d like your probate assets to pass at your death. While you may think that a will addresses how all your assets pass, that’s not the case — a will only controls your assets passing through probate. Your will allows you to put conditions or restrictions on how gifts might be used and provides an opportunity to appoint a guardian for any minor children or other legal dependents.

Assets pass according to a revocable living trust

A revocable living trust is a legal arrangement in which the creator of the trust (also known as the grantor, settlor or trustor) transfers assets to a trustee to manage on behalf of the trust’s beneficiaries based on the terms of the trust. A key feature of a living trust is its appointment of a trustee to manage and/or distribute the trust property based on your instructions in the event of incapacity or after your death. Your trust should appoint other individuals or a corporate trustee, such as Edward Jones Trust Company, to serve as successor trustee(s) should you become unable or unwilling to act.

Upon your death, the successor trustee will administer the trust without the need for probate. But your trust’s terms apply only to assets owned by, or titled to, it. However, if the trust is a designated beneficiary to receive assets not owned by the trust prior to your death, then your trust’s terms will apply once those assets are delivered to the successor trustee. Ensuring assets are titled in your trust’s name or designated to your trust as a non-probate beneficiary is an essential step that’s often overlooked, as assets that aren’t retitled in the name of the trust or directed to the trust after your death may not pass as intended and could be subject to the probate process.

What’s the right choice for me?

Everyone’s situation is unique, so there's not one answer for how to transfer assets. Your optimal plan might be a combination of different transfer methods. Make sure to consider the following:

• When completing your estate-planning documents, request written direction from your estate-planning attorney.
• Your attorney might also be able to help you with paperwork, which could include new real estate deeds; stock transfers; assignments of interests in LLCs, partnerships or other businesses; or title transfers.
• Review your asset titling, TOD/POD designations, beneficiary designations, and successor owner designations annually and when major life events occur, such as births, deaths, job changes, marriage and divorce.
• Think carefully about asset titling and beneficiary designations when you purchase a new asset, receive a gift or inheritance, or open a new account.

Regardless of which method you choose, you should always plan for contingencies and name/include successor or contingent beneficiaries in wills, trusts and other beneficiary designations should your initial beneficiary predecease you.

Asset transfer: A cautionary example

You’re a widow and would like to pass your assets equally in trust to your two children.

You’ve worked with your estate-planning attorney to establish foundational estate-planning documents including a revocable living trust and pour-over will. Your goal is to transfer all remaining assets equally to your two children in trust for their lifetimes.

• Your attorney prepared a deed transferring the title of your home to your trust.
• Your financial advisor helped you retitle your brokerage account into the name of the trust.
• You forgot to retitle your car or checking account into the trust or change your life insurance beneficiaries.

Upon your death, here’s what would happen:

1. Your trust assets (your home, brokerage account and, eventually, your car) will be managed by the trustee of your trust, who will create equal trust shares for your two children and make distributions in accordance with the trust’s terms.
2. Your car will go through probate before transferring to your trust.
3. Your checking account will transfer outright to your son. Your daughter will not be entitled to anything from the checking account.
4. Your life insurance proceeds will be split into equal shares for your two children with each receiving their share outright.

Here's what everyone received in the end:

This is a cautionary illustration. The transfer plan described above wasn’t what you wanted to happen, and that’s due to how assets were titled and how beneficiaries were named. These unintended consequences could’ve been avoided through annual reviews to confirm you’ve named beneficiaries and titled assets in accordance with your wishes and the guidance provided by your estate-planning attorney.

How we can help
Don’t compromise your planning because you didn’t update your asset titles. Contact your estate-planning attorney and financial advisor to identify the path that works best for you.